A key concern in the plywood sector is soaring freight rates, notably in containerized trade. With global container distribution disrupted by the pandemic, shippers out of Asia have been naming their price. Importers report five and six-fold rises over the last six months, some even more.
While Chinese hardwood plywood suppliers are reported to have generally returned to pre-pandemic production levels, some manufacturers in Indonesia and Malaysia (despite EU+UK imports from the latter rising in 2020) are reported to still to be struggling. “One of our leading Malaysian suppliers is still only at 50% of normal production due to safe distance work practices and so many staff being in isolation,” said an importer.
Another said that increased competition from US buyers was adding to supply difficulties out of Asia. “It’s partly because of the boom conditions in US construction, and also some American buyers having diversified their supply base away from China to other Asian producers during the trade dispute,” they said.
Asian manufacturers’ prices overall are reported up around a further 10% in 2021. This is partly in response to growing demand, in domestic as well as export markets, but also to an extent poor weather disrupting log supply.
And, of course, adding to inflationary pressure on sales prices are the surging freight rates from the region. A hardwood importer reported being quoted as much US$15,000-US$16,000 on containers out of Indonesia.
European plywood producers don’t seem to have come across those levels but are now generally facing rates of US$7000-US$8000 from China and US$8000-9000 from Malaysia and Indonesia.
“That compares with between US$1500-2000 last October,” said an importer. “While the market has been absorbing price inflation recently we can’t sustain this sort of increase long term – and if prices go much higher we could be in a very difficult position.”
The situation has prompted many importers to switch wholly or partly to breakbulk, citing costs out of Asia of US$90-100/cu.m to EU and US$100-110/cu.m to UK ports, compared with US$135-150/cu.m for containers. However, said one, this is not necessarily a straightforward alternative.
“For one thing, breakbulk shippers are now at capacity, with services heavily booked, and they’re responding to increased demand by raising their rates,” they said. “In addition, you have to be shipping large volumes to make it most cost effective, which for us is OK from China, but more difficult from Malaysia and Indonesia. The alternative is to piggy-back on other cargoes, which can be complex.
Shippers also want payment the moment the vessel is loaded, breakbulk delivery tends to be slower, then you may find customers don’t want to take this sort of volume all at once. They wouldn’t want ten containers in one go, but perhaps ten over six weeks. Similarly, they wouldn’t want an entire break bulk load. So then you’re into issues of storage and you could find yourself financing a shipment for three to four months. That’s a drain on cash flow you shouldn’t underestimate.”
Risk if container rates fall quickly
Importers agree a container rate correction will have to happen. The critical questions are when and by how much. “We can’t see things changing for two to three months, then we’ll be into our July/August peak buying season, exacerbating the situation,” said one importer/distributor.
“As much a worry as freight rates continuing at current levels, or rising further, is a sharp and sudden correction” said another trader. “At the moment, due to the tight and uncertain supply situation, customers are placing forward orders to July, August, even September.
If rates drop rapidly, some businesses could be looking down a deep dark hole. Big stockholding importers and distributors especially could be faced with very painful depreciation levels. So managing stock right now is difficult and taking long-term positions very risky.”
The birch plywood trade has its own issues. A rising wider plywood market, plus raw material shortages have prompted Russian producers to increase prices this year by 20%-25%.
“The mild winter impacted the harvest resulting in mills running short of particular qualities, and now we’re into spring, the situation is expected to become even more difficult,” said an importer. “In addition, due to demand for construction lumber, we’ve seen some shift of harvest from birch to pine.”
Underlining the stress in supply, one Ukrainian mill was reported to be asking customers to submit orders and specifications, then pitching one bidder against another.
Also hanging over Russian plywood is the prospect of EU anti-dumping duty. “It’s creating a lot of uncertainty as we don’t know yet whether it will happen, when or how much it might be,” said an importer. “We’ve warned customers that we may have to put any retroactive duty on their account and, obviously, the further ahead you buy, the greater the risk. The result has been a rush on birch plywood for delivery by May or June and added price pressure.”
There are stresses too in the softwood plywood market. Prices on French, Russian, Scandinavian and Chilean are all up and delivery times are now stretching into September/October. More recently Finnish has risen 8% and Eastern European 20%+. Some suppliers are also reported to be adopting hard-nosed sales tactics.
“One Belarusian producer has cancelled all outstanding orders twice in the last three months and told clients they have to pay a new price or lose their shipment,” said an importer. “This is previously unseen behaviour and puts a lot of importers in a very difficult situation because they, of course, have commitments to their customers.”
The sharpest price rises have come in Brazilian Elliotis, fueled partly by curbs on production due to the pandemic, but mainly by surging US demand. “Prices have doubled since October to US$400/cu.m. Effectively US buyers have priced it off the European market,” said one importer. “And the trend is still upward. Recently we heard US$450/cu.m being quoted.”
In response to the intense demand for softwood plywood from their regular sources, some European companies have started opting for Chinese product instead. “It’s not the same quality, but it’s available and cheaper,” said an agent/importer.
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